Chile Peso Falls Most in Emerging Markets After Policy MinutesSebastian Boyd
Chile’s peso plunged to a four-year low, leading a decline in emerging-market currencies, as copper sank and the central bank’s minutes showed that policy makers discussed cutting borrowing costs two weeks ago.
The currency depreciated 1.5 percent to 555.80 per dollar at the close in Santiago, its weakest level since October 2009. The peso fell 5.5 percent in January, the biggest monthly drop since May. Copper fell for an eighth straight day, dropping 0.7 percent to its lowest this month.
Chile’s peso tumbled as the central bank published minutes of its Jan. 16 meeting, highlighting slowing growth and indicating that policy makers considered lowering the target lending rate before deciding to hold it at 4.5 percent. Deadly protests from Ukraine to Thailand and a contraction of manufacturing in China help stoke a broad selloff in developing-nation currencies in January as Argentina’s devaluation of its peso last week dented confidence in Latin America.
“It has been almost a perfect storm for emerging markets,” Felipe Alarcon, an economist at Banco de Credito & Inversiones in Santiago, said in a phone interview. “In addition, we have the central bank probably lowering rates here on economic deceleration.” The peso is oversold and will probably approach 545 per U.S. dollar, Alarcon said.
Foreign investors in the country’s forwards market increased bets against the peso by $360 million to $14.6 billion on Jan. 29, approaching the $14.9 billion record on Jan. 24.
Yields on 10-year inflation-linked bonds fell as much as three basis points, or 0.03 percentage point, to 1.99 percent, the lowest since the beginning of data in 2005.
Chile’s economy grew 2.8 percent in November from a year earlier, the central bank reported Jan. 6, the slowest in two years after the prior month’s 2.77 percent pace.
Inflation accelerated to 3 percent last month from 2.4 percent in November, the national statistics agency reported two days later. Policy makers said the faster pace reflects recent declines in the peso.
Local investors have been buying benchmark bonds as a haven even as foreign investors sell swaps in line with the broad selloff in emerging markets.
Bloomberg’s Chile local sovereign index rose today as the broad local emerging-market sovereign bond index fell. The 10-year swap spread, the gap between the swap rate and the yield on benchmark government bonds, widened two basis points to 48 basis points today, the highest since 2006.